Case Study of the Five Point System

 

 

PROSPECTIVE PROPERTY 1 A 4+ acre property was listed on the web for $40,000. How high does it rank on the rating chart?
CRITERIA 1: ACCESS I asked these questions: What’s the access? Can we reach the property? Is the access path well traveled? Is the access lawful? Do we need a tank to mow down trees for the property? In this example, the property was just one road removed from the primary highway, access was quite great. Th e road was quite flat. Th e smallest vehicle would have the ability to access the property from the highway, in fact there was a driveway. Th e road from the highway to the land was gravel, so the traction was great. Out of a possible score of 20 for accessibility, I’d rate this a 19.
In this instance, the land was a rectangle. There were many big pine trees, and the lot was straight across from state land to the south. This meant no neighbors to the south, and the views were nice and quite secluded. I would rate this design another strong 19.
CRITERIA 3: LOCATION The property was less than an hour away from a major city, 7 miles from a small town, 10 miles from a medium sized city, and less than 2 miles from a public boat launch for fishing and great boating. I’d rate the place a score of 15 out of a possible 20.
CRITERIA 4: DEVELOPMENT POTENTIAL In this particular property, all improvements (water, power, septic) was made. The well produced 5+ gallons per minute and a three bedroom gravity septic system was installed. Power and telephone were installed, with power to the well. A three bedroom mobile home was on the property. With all these improvements to the property and a mobile home, the standards score is a company 20.
CRITERIA 5: PRICE For this property, the cost was $40,000. A 12 percent return return means I’d double my investment in six decades. I ended up making $470/month, for a 14 percent annual cash on cash return. I would rate this score on cost as a 17.
The whole score for Property 1 was 90/100. This property was a very good buy and a good bet for secure cash flow.

Newspapers

 

Even though the world wide web has replaced a fantastic majority of print media, many people buying and selling land still appear to it as their first source. Personally, I do not think it will ever go away completely. Many people like the feel of a paper in their hands, just as having money rather than using plastic is attractive. A lot can be inferred from an advertisement in a regional newspaper. Looking at an advertisement from a buyer’s perspective (in search of a fantastic deal) means a couple of important points should be considered: How big is the advertisement? Does it look like the man took time to write the advertisement or did they just throw it together? (Th is might mean, „I do not care about this land, I don’t need this, and I’ll negotiate in price or terms.“) After, I came across an advertisement in a regional newspaper that was just a few words long and looked cheap. Th is meant the man did not care about the property, did not understand what he had, wanted to eliminate it, or was not organized or disciplined toward the objective of selling the property. The advertisement was for 11 acres for $20,000. On the surface, the advertisement did not say much nor communicate anything about the property. The only thing the ad revealed was that it was a inexpensive ad! It was 11 acres, divided into two separate parcels of 5.5 acres each and there were many old trees on the ground. These were 30+ year old trees with great size and dimensions to them and I believed there was some fantastic timber worth to them. I found out the man had to sell the property because he was moving out of town and wanted the money for moving expenses. I offered him $16,000 money to close in a couple of weeks and he admitted. While I didn’t have the money at the moment, my partner did, and I did all the additional operational and coordination details. I logged the land a few months later and took off $12,600 in timber, while leaving many great trees on it. In this specific case, the timber required to be cut or it would have lost value in the mistletoe and bugs destroying it gradually. It was great timing. The land is currently making $150/month for each partner. The lesson provided in this instance is to search for those little, cheap ads which the majority of individuals aren’t looking for. They are ‚for sale by owner‘ or via realtors, it does not really matter, provided that the ads appear cheap. These advertisements say „Please buy me, and faster is much better than later.“ When looking through print advertisements, determine what’s the advertisement telling you by stepping back from it and looking at the larger picture.

Realtor hand-outs and fliers in shops or restaurants

 

In real estate booklet listings, big money makers aren’t what a fantastic investor will want to search for. Listings that provide the maximum commission to the realtor will be promoted first, and take up the most screen. Properties which are cheaper, give less commission to the real estate agent, are more difficult to manage, and therefore are more challenging to sell and market will be relegated to the back of the booklet. I am not implying that this is a wrong company move, as most people would do this. Realtors are in business to market their listings and will attempt to sell a costly listing over a more affordable listing. To the tiny individual investor or developer, this represents a superb chance to snap up some excellent rural land properties by looking in the perfect spots. 1 day, at a McDonald’s in a tiny little town in north-central Washington, I decided to learn what listings were available. I caught as many colorful brochures and plain paper listings as I could, and went home to spend a few hours looking them over. As I guessed, the priciest listings were in front with all the amazing reasons why anybody should purchase these properties. Since I was searching for the land listings, rural residential land particularly, the procedure became a bit more involved. I eventually stumbled upon the rural residential land listings–at the back of the booklet. It only took up two lines, so the real estate broker had probably had a limited amount of room to complete the listing. I decided to look to this advertisement, and not simply because the price was cheap. The possible value of a property using a creek, phone and power got my attention. I called the agent but the record had expired, meaning the actual estate agent’s contract with the vendor was no longer legitimate. I don’t know whether the listing died soon after the representative listed the property on the booklet, or if the record expired nicely after the brochure was distributed, and was for some time, but it did not matter. The agent gave me the telephone number of the vendor and I contacted them directly, and managed to negotiate a cost of $8,000 money to close a couple weeks later. Eight decades later, this land has returned not just our initial costs, but has thrown off tens of thousands of additional dollars and still yields a monthly income.

Driving or walking across the region

 

Driving or walking around the area you would like to buy in is a really good way to locate rural properties. Turn off any distractions and concentrate on the mission. Once, I was driving around an area looking to buy a particular piece of land a realtor had told me about. This realtor didn’t wish to meet me to show me the land, which is a really common occurrence in rural areas for raw acreage listings. There are lots of reasons for this. In part, it’s due to low commissions, and frequently the realtor doesn’t know the region, the dimensions of the property, or how the home appears. In other words, many realtors that sell raw acreage haven’t walked the corners of their land and can not show a potential buyer or investor that the corners. Despite this annoyance, this is in fact good news for the investor, since the realtor isn’t going to represent the customer to the best of their skills, making the opportunity for a better deal for the buyer. The land was a 2+acreage, but I could not find it. I took a wrong turn, something I am in habit of doing (I’m directionally challenged, as my daughter says). I stumbled upon a For Sale by Owner sign, on piece of land that actually caught my eye since it had exactly what I needed at the moment. I called the owner, made an offer, and purchased the land. This property provided a excellent monthly income. After I partly developed it with phone and power I managed to sell it to buyers that finished developing it entirely by adding water and septic systems.

Realtors

 

Much has been written and will continue to be written about the value of realtors into the real estate transaction. Although not an endorsement of realtors, I will say that lots of properties wouldn’t get sold without using a realtor, because many sellers do not have the savvy marketing skills of professionals. Realtors have contacts with prospective buyers (such as investors) than many private sellers will, and realtors bring a sense of professionalism to the table. Oftentimes, there are also distinct benefits to your buyer when using a realtor. There’s a dirty little secret in the real estate industry called the ‚pocket listing.‘ This is a listing that is not on the net or M.L.S.. To put it differently, there’s not any contractual relationship between a seller and realtor regarding these properties, unless the realtor may find a purchaser. The agreement is generally a loose one, and a few realtors such as these arrangements because they do not need to share a commission with another realtor. While on the surface it may appear that the vendor has the edge, because the realtor knows the vendor directly and is representing them, many times the purchaser gets the real advantage because the seller wants to sell the property with a fantastic price or terms. A distressed broker and a frustrated seller make good news for an enterprising land investor.

The Internet

Many good web sites exist to help people find property to purchase. The price and particulars of this property will be listed in the advertisement. Although a lot of internet sites are realtor established, some are more impartial. The speed with which properties may be seen creates a major advantage for web sites over other procedures, because someone can literally see hundreds of listings within a really short time period. The major disadvantage to this process is the overall lack of quality information. Much pertinent information regarding a property is frequently omitted or unfamiliar. If you’re just starting out and don’t know the region, this presents a challenge.

Tax/Sheriff sales

 

Many nations hold tax sales to collect unpaid property taxes. After a certain length of time, usually two to five decades, states start a foreclosure and make an auction for a property so that owed taxes can be paid. A fantastic time to get these properties is before they go to auction. Usually a fantastic cash offer, with the purchaser paying the back taxes, will motivate the seller. In these scenarios, the window to act is brief because people change their mind quickly and abruptly

Direct marketing

In lots of the options previously mentioned, the vendor or a representative of the vendor initiates the procedure. Many, if not all realtors, use a direct marketing strategy to solicit owners of a property to market. If the owners of the property agree to list with an agent after this direct marketing strategy, the agent receives a commission from the sale of their property. This commission is a 1 time payment, but when we discuss direct marketing to owners as investors, we’re talking long term. We would like to get paid monthly for holding the contract, this is the end game for investors. Let us talk about the factors of successful direct marketing. To begin with, this process must involve an excellent understanding of the region that you’re attempting to acquire property in, and it is important not to send out letters to property owners using a generic letterhead. Most individuals toss these letters in the wastebasket. Type the corresponding property names and numbers to the accessible regional government website to recover the property owner’s names and any other pertinent details. After these first steps, you can research individual owners. A few good hints for studying property owners are as follows: Attempt to locate owners which are from the area and search for long term owners with very little history, signaling people that have quietly possessed the property for ages. Owners who are ‚out of this area‘ need only be up to a four to five hour drive from the property. If people don’t physically see a property often, they lose contact, identity, and affection to your property, and might be receptive to selling. Finding a property with owners with small sales history will remove investors who have sold the property many times. A person or couple having a property for many years with no history can indicate a lot of things, and you can say in your letter that you’re not a realtor because a lot of people don’t enjoy working with realtors. Imagine you contact an owner with minimal action using this direct marketing strategy. He calls and you buy the property 45 days later at a fantastic price. You build the property 3 decades later, with some utilities, and market it on a contract to someone that needs privacy and no neighbors. This is the general procedure. If you know the area and become knowledgeable about the properties you’re studying, the direct marketing approach is a really powerful and effective way of obtaining rural residential investment properties. It takes a little time and patience, but the results can be extremely good.

Realtors

 

The real estate market is a fragmented business, with many people doing many different things both individually and together as special needs arise. In some areas of the country, escrow professionals are mainly lawyers that handle closings and at any region of the country, most lawyers can take care of any closings. This fragmentation of the industry as well as the specialty of every function has helped fuel a real estate bubble. Since most participants at the real estate bubble and the real estate market economy had no real skin in the game, each work specialization was intended solely to maximize each individual’s and business’s profit. So as to play in any game and know that game well, it’s essential to recognize the players and their role. Let us start with realtors. I am not certain where this myth began, but it has been around for a quite a while. If a realtor is selling their own property, this presumption may be true, but that’s a rare occurrence. Even if a realtor is selling a private property, he or she has others to report to and rely on. In fact, the function and role of a realtor is typically very complex and complex. At the organizational chain of company, the realtor accounts to your broker or managing agent. Despite this, the fact is often less direct. The order of representation and preference is usually a realtor represents the agent first, himself or herself moment, and the customer last, while it’s the seller, buyer, or both the buyer and seller in a condition called double agency. This warrants a word of warning to investors: Dual agency is quite hard (if not impossible) to for any realtor to do well. There’s too much drama. The realtor is fractured in their representation, and frequently can not help but to prefer one side over another. 1 side will offer better or more communication, the realtor will personally know one side better, or the realtor will just be interested in a commission, not care about representing both sides evenly. Usually of dual agency, 1 party isn’t represented completely. Another myth concerning realtors is they’re knowledgeable specialists regarding territory. This is because great rural investments are tough to discover and take time to develop, and many realtors do not have the time or patience to find them or even learn how to recognize them. In addition, there is a lot of turnover in the market, which makes it hard for anybody to come up with a deep skill or comprehension of land and what is needed to develop, market, and sell it. Many realtors start part time and remain part time for many years, only offering part time commitment. While difficult to work around, this reality will present a fantastic chance for knowledgeable buyers to purchase at good rates and conditions from realtors who do not know what they’re selling.

Vertical integration

The objective of vertical integration is to become nearer to the end user, either by removing an external function or by controlling the costs paid for outside substances (as in a manufacturing context). Think about a car manufacturer; here, the producer want to control the purchase price of a material necessary for their success, like steel, by having a steel mill. This gets rid of an external function, putting the producer in more direct contact with the end user, the car buyer. Vertically integrating your approach from the territory business might mean selecting owner financing on properties rather than choosing an outside source of funding. In down markets, this removal of outside financing can be vital to survival.